PLR 200239011: Corporation receives relief for a missed S election filing

Plain-English summary

Two shareholders intended S corporation status for their newly incorporated business and relied on a tax adviser to file Form 2553. The election was not filed on time. The IRS found reasonable cause and ruled that a completed Form 2553 filed within 60 days of the letter, with the incorporation date as its effective date, would be treated as timely. The IRS limited its ruling to election timing and did not decide whether the corporation otherwise qualified for S corporation status.

Ruling snapshot

• Question: Could the corporation's late S election be effective for the taxable year beginning on its incorporation date?
• Outcome: Approved, conditional on filing Form 2553 within 60 days with the intended effective date.
• Key authorities: IRC §§ 1362(a), 1362(b), and 1362(b)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200239011
Washington, DC 20224
Release Date: 9/27/2002
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-109953-02
Date:
June 20, 2002

LEGEND

X =

A =

B =

D1 =

State =

Dear
:

This letter responds to a letter dated January 2, 2002, and subsequent correspondence from your authorized representative requesting, on behalf of X, a ruling under § 1362(b)(5) of the Internal Revenue Code.

FACTS

X was incorporated under State law on D1, and X's shareholders, A and B, intended to elect S corporation status for X. A and B relied upon X's tax adviser to file X's Form 2553, Election by a Small Business Corporation. However, the Form 2553 was not

filed timely. X requests a ruling under § 1362(b)(5) that it will be recognized as an S corporation effective for the taxable year beginning D1.

LAW AND ANALYSIS

Section 1362(a) provides that a small business corporation may elect to be an S corporation.
PLR-109953-02
2

Section 1362(b) provides the rule on when an S election will be effective. If an S election is made within the first two and one-half months of a corporation’s taxable year, then the corporation will be treated as an S corporation for the year in which the election is made. If an S election is made after the first two and one-half months of a corporation’s taxable year, then the corporation will not be treated as an S corporation until the taxable year after the year in which the S election is made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362 for making the election or no § 1362(a) election is made for any taxable year, and (2) the Secretary determines that there was reasonable cause for the failure to timely make the election, then the Secretary may treat the election as timely made for such taxable year.

CONCLUSION

Based on the facts submitted and representations made, we conclude that X has established reasonable cause for its failing to make a timely election and that X is eligible for relief under § 1362(b)(5). Accordingly, if X makes an election to be an S corporation by filing with the appropriate Service Center a completed Form 2553, containing an effective date of D1 for the election, within 60 days following the date of this letter, then such election will be treated as timely made. A copy of this letter should be attached to the Form 2553 filed with the Service Center. A copy is enclosed for that purpose.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion concerning whether X is an S corporation for Federal tax purposes.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to your authorized representatives.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Sincerely,
Christine Ellison
Chief, Branch 3
Office of Associate Chief Counsel
Passthroughs and Special Industries

Enclosures (2):
Copy of this letter
Copy for § 6110 purposes cc: